Terms Used in Bank Reconciliation Statement: Guide

terms used in bank reconciliation statement

Want to know the terms used in bank reconciliation statement? Read on.

To effectively perform bank reconciliation, it’s crucial to familiarize yourself with the terminology associated with the bank reconciliation statement.

Similar to mastering any skill, acquiring the relevant vocabulary is key to success.

Words hold significant power, much like a finely honed sword that can be wielded to attain mastery.

Just as a chef needs to understand culinary terms or a musician must grasp musical terminology, delving into the language of bank reconciliation lays the foundation for accurate and successful financial management.

So, equip yourself with the appropriate words and empower your ability to navigate the complexities of bank reconciliation with precision and confidence.

Unadjusted Bank Balance

When you get the bank statement from the bank for your company, you’ll see a few key things.

First off, there’s the starting balance for the month.

Then, you’ll find details about the debits and credits transactions that occurred throughout the month.

Finally, you’ll spot the closing balance for the month.

This closing balance is referred to as the unadjusted bank balance in the bank reconciliation statement.

Think of it as the initial reference point when you’re working on the bank reconciliation statement.

Deposits in Transit

Once you’ve figured out the starting balance, the next important term is deposits in transit.

These are essentially deposits that you’ve noted in your cash books but haven’t yet been processed by the bank.

These could include checks or cash you’ve deposited, but for various reasons, the bank hasn’t officially recognized them.

Examples of such instances could be checks still awaiting clearance, deposits made after the cutoff time, or transactions that occurred over weekends and holidays, likely to be recorded by the bank in the following month.

Outstanding Checks

Now, let’s talk about outstanding checks in the process of bank reconciliation.

These are essentially checks that your company has written and documented in its cash books, but they haven’t been cashed or cleared by the bank yet.

In simpler terms, the people or entities you wrote these checks to haven’t deposited them in their bank accounts.

It could be that the recipients just haven’t had the chance to take the checks to the bank for processing.

So, until these checks are presented to the bank and officially cleared, they remain as outstanding checks in your records.

Bank Errors

Banks also have their own staff, and like any other organization, they are not immune to making mistakes.

These errors may occasionally appear in the recording of their clients’ bank account transactions.

Bank reconciliation is a process that helps identify such discrepancies, acknowledging the fact that humans are prone to making mistakes, and it ensures that the recorded transactions align accurately with the clients’ actual financial activities.

Adjusted Bank Balance

Once you factor in deposits in transit, outstanding checks, and any errors made by the bank, you arrive at the adjusted bank balance.

Ideally, this adjusted balance is what should be reflected in the company’s balance sheet and should align with the bank’s final balance.

However, there are instances where the company’s books might not account for certain unadjusted reconciling items for various reasons.

Unadjusted Book Balance

Now, moving on to the next aspect of bank reconciliation, we have the company’s cash book records.

Similar to the bank statement, the company maintains a cash book that includes the initial balance, details of both debits and credits transactions, and the final balance.

At the end of the month, this final balance is referred to as the Unadjusted Book Balance (term).

When we begin the reconciliation process on the company’s side, we start with the Unadjusted Book Balance, which essentially sets the stage for the entire bank reconciliation statement.

Unrecorded Deposits


In the book part of the reconciliation, there’s often a discovery of unrecorded deposits.

These are deposits visible in the bank statement (on the credit side) but haven’t been logged in your company’s cash book yet.

The bank reconciliation process helps bring these oversights to light.

Unrecorded Disbursements

Now, let’s delve into a crucial aspect known as unrecorded disbursements.

These involve cash withdrawals from your company’s bank account that haven’t been documented in the cash book.

Essentially, these are checks and cash that show up on the debit side of the bank statement you received from the bank.

Unrecorded disbursements play a vital role in the bank reconciliation statement, as they can uncover errors or even deliberate actions to conceal these transactions.

Identifying and addressing such discrepancies is essential for maintaining accurate financial records.

Bank Charges

Let’s talk about bank charges for a moment.

These are fees that your bank takes out of your company’s bank account, kind of like little deductions to your balance.

Usually, the bank sends these debit memos at the end of each month.

Now, here’s the catch – what if these memos are late in arriving?

If that happens, your company might miss recording these bank charges.

But don’t worry too much, you’ll catch these fees during your bank reconciliation.

Just keep an eye on the debit side of your bank statement; you’ll often see them marked as “DM”.

Interest Income

Now, let’s talk about interest income.

When your company puts money into a bank, it actually earns some extra cash in the form of interest.

The frequency of this interest payout depends on the type of account your company holds.

It could be a monthly, quarterly, or yearly thing.

Here’s the catch – unlike your regular bills or notifications, the bank won’t send you a special credit memo for the monthly or quarterly interest income.

Instead, they neatly list it in your bank statement.

So, if you’re curious about those extra earnings, you’ll need to dive into your bank statement to find the details.

Book errors

Just as banks can make mistakes, your company’s bookkeeper might also make errors when recording your business transactions.

Sometimes, these mistakes can slip past your accountant’s notice.

The bank reconciliation statement comes in handy here because it acts like a detective, helping your accountant uncover these errors and fix them promptly once they’re identified.

It’s a useful tool for maintaining accuracy in your financial records.

Subsidiary Ledgers

The subsidiary ledger plays a crucial role in bank reconciliation as it provides a detailed breakdown of transactions recorded by both your company and the bank.

When dealing with client transactions, we organize debits and credits to facilitate a seamless reconciliation process.

Similarly, for bank records, we meticulously sort debits and credits from the bank statement, ensuring a thorough and accurate reconciliation.

This meticulous approach helps in aligning both sets of records and resolving any discrepancies effectively.

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